By Mak Yuen Teen

Singapore’s corporate governance journey officially started 25 years ago when the first Corporate Governance Committee was established in early 2000. In 2001, when the Committee, which I was part of, delivered Singapore’s first Code of Corporate Governance, I was hopeful that corporate governance here will improve. One member told me that things will not be the same and he will have to reduce his number of directorships.

Since then, there have been three revisions of the Code and I have been involved in two of the subsequent committees updating the Code. I am now involved in another review of the Code as a member of the Corporate Governance Advisory Committee (CGAC). However, my hope has long been replaced by despair, as I have observed corporate governance standards in issuers slipping, even among the largest ones.

The divergent trajectory between corporate governance reforms and health of the equities market

While corporate governance reforms have gone on for 25 years, the equities market has seen several waves of scandals involving S-chips, and the malaise soon spread to other issuers. Meanwhile, the number of listings has fallen from its peak of nearly 780 in the early 2010s to 613 in April 2025. Delistings have outnumbered new listings for several years, with this trend accelerating in the first quarter of this year.

The overall long-term performance of surviving issuers listed on the Singapore Exchange has not been great. For primary-listed companies on SGX, 22 out of the 67 largest have 5-year median ROE of less than 7%, 35 have 5-year median annualised TSR of less than 5%, and 31 have 5-year median P/B ratio of less than 1.

For REITs and business trusts – the sector often touted as our crown jewel – 11 out of the 30 largest have 5-year median ROE less than 5%, 24 have 5-year median annualised TSR of less than 5%, and 19 have 5-year median P/B ratio of less than 1.

Many of the smaller issuers, which dominate our market, have fared much worse. The number of issuers with more than S$1 billion market capitalisation has fallen, and those listed on Catalist now account for more than one-third of all issuers, double what it was just over a decade ago.

Correlations between governance scores, based on the 2024 Singapore Governance and Transparency Index (SGTI), and the above financial metrics for companies, REITs and business trusts, range from -0.008 to +0.136. While there are significant limitations with the SGTI and such correlations are inconclusive, the fact that they are so low may cause skeptics to be even more skeptical about the benefits of good corporate governance.

I regularly hear comments such as “corporate governance is not enough, companies must also focus on value creation” or  “countries have turned their attention to ”value up” initiatives instead of just corporate governance.”  While these comments reflect a lack of understanding that corporate governance and value creation are intertwined, we are seeing pushback against improving corporate governance in several markets, even though there may be different underlying reasons.  For example, the UK decided against moving forward with most of the proposed changes in its Code and Australia completely dropped the idea of adopting a new Code. Back home, SGX Regco’s recent proposals to allow listing applicants with major governance risks to be listed as long as they are disclosed, may also signal to issuers that our frontline regulator now has a higher tolerance for poor corporate governance.

The reality, however, is that there is a wide gulf between corporate governance reforms and actual corporate governance practices of issuers.

Why corporate governance reforms have failed to improve corporate health

Right from the beginning, it was clear that the purpose of corporate governance is to “enhance long-term shareholder value creation through enhancing corporate performance and accountability”, as the report of the first Corporate Governance Committee said. It was not just about accountability but performance as well.

The first Code included a Guidance Note that states:   “In addition to any relevant performance criteria which the Board may propose, the performance evaluation [of the Board] should also consider the company’s share price performance over a five-year period vis-à-vis the Singapore Straits Times Index and a benchmark index of its industry peers. Other performance criteria that may be used include return on assets (“ROA”), return on equity (“ROE”), return on investment (“RPI”), economic value added (“EVA”) and profitability on capital employed.”

The intent was that boards should keep their eye on performance of their companies. The 2005 Code largely retained this guidance but divided it between a Guideline and a Commentary (Commentaries were not subject to “comply or explain”). The 2012 Code removed any reference to benchmarking against the STI or industry, or other specific corporate performance measures. The 2018 Code and Practice Guidance now make no reference to any measures relating to shareholder value creation or corporate performance as performance criteria of the board.

Perhaps this helps explain why some boards tell shareholders they have no target ROE, and why long-term corporate performance is often  poor without boards seeming to feel the need to act. It may be time to reinstate corporate performance to the criteria for board performance assessment in the Code and this will tie in with a “value up” initiative. In fact, we should consider making it mandatory to disclose such information under the board’s performance assessment. Boards should be expected to explain steps they are taking to address under-performance in their companies.

Institutional investors have failed to play their roles

When the first Corporate Governance Committee decided to adopt the “balanced approach” to improve corporate governance here, and recommended that the Code should be based on “comply or explain”, it said that “while the SGX has the responsibility of ensuring that listed companies disclose their corporate governance practices as well as their reasons for any deviation from the Code, the quality of the explanations is for the market to assess and judge.”

Not long after companies commenced reporting against the first Code, I started writing about many not observing the “comply or explain” requirement. In 2007, the first set of recommendations in my report on improving the implementation of corporate governance practices in Singapore, commissioned by MAS and SGX, was on how to improve the implementation of the “comply or explain” requirement.

In other markets like UK, US and Australia, institutional investors play an important role in holding companies to account for their corporate governance. Large listed companies have been publicly singled out by institutional investors and proxy advisers for non-compliance with the Code without sufficient justification, or for other questionable corporate governance practices – although there has been criticism that these investors and advisers are contributing to a “one size fits all” approach to corporate governance because of their lack of tolerance for deviations from recommended practices even where such deviations may be justified.

In Singapore, institutional investors and proxy advisers have rarely stepped up to hold companies publicly to account for questionable corporate governance practices. SGX also did not play its role initially as there were many companies that did not comply and did not explain, and there was no intervention by SGX.

In recent years, SGX Regco has done more to seek explanations from companies where there were deviations without explanations or where it felt explanations were inadequate. However, with institutional investors taking a backseat and boards with supposedly independent directors often pushing back against compliance with the Code and endorsing questionable explanations for non-compliance, the “comply or explain” approach has fallen far short of expectations. SGX Regco’s recent proposal to reduce the number of public disclosure-related queries may further lead more issuers to disregard the need to provide reasonable explanations for non-compliance with the Code.

When the Code was last revised in 2018, the Corporate Governance Council recognised that the “comply or explain” approach was not really working. It made the Principles mandatory and said that explanations for “variations” from Provisions should be “comprehensive and meaningful”. Unfortunately, the “mandatory” Principles have proven to be less than effective because principles are by their nature broad, and it is often possible for companies to state they comply with these broad Principles when they arguably do not. Further, SGX Regco generally accepts issuers’ explanations for “variations”, as what is “comprehensive and meaningful” may be a matter of opinion.  Ultimately, investors, especially institutional investors, must step up.

To strengthen the local fund management ecosystem which is part of the first set of measures recommended by the Equites Market Review Group, MAS  said that it will launch a S$5 billion Equity Market Development Programme. It will start the process of evaluating eligible fund managers and strategies over the next few months and eligible fund strategies “include those that invest into Singapore equities, or invest a substantial component into Singapore equities as part of a regional or thematic focus. The strategies should be actively managed, commercially viable and work towards attracting capital from other commercial investors including institutional funds, family officers and other private entities.”

MAS should ensure that selected fund managers include those with a strong track record of exercising stewardship over investee companies. Temasek, being the largest institutional investor in Singapore companies, must also step up its stewardship and push their portfolio companies to improve their boards and corporate governance.

Without Temasek and other institutional investors stepping up, it is difficult for corporate governance practices to improve in Singapore.

Directors are the biggest culprits

However, the biggest hurdle to improving corporate governance here are directors themselves, including independent directors (IDs).

Over much of the last 25 years, I have written hundreds of articles often critical of the corporate governance practices of companies. What frustrates me are directors, including IDs, claiming that whatever they do is good corporate governance. Directorships are often treated as sinecures, with no accountability.

During this year’s peak AGM season, we saw plenty of examples of questionable corporate governance practices defended as being sound. At City Developments Limited (CDL), two IDs were appointed through a rushed process, without first seeking approval from the nominating committee or board to increase the size of the board and to search for new directors. Shareholders were told by one of the IDs that breaching corporate governance norms was necessary on the basis of principles and substance. At the same AGM, the company said that the directors’ skills listed in the annual report are based on what the directors put themselves out as having. No wonder so many boards here seem to lack the mix of competencies relevant to their business.

Over at two other issuers, the same senior partner of a law firm was appointed as chair of the audit and risk committee, even though the Code recommends that the audit committee chair should have “recent and relevant accounting or related financial management expertise or experience”. A lengthy justification was provided but missing is any direct experience in accounting or related financial management functions. There is a difference between someone who knows how to drive a car and someone who knows how it is built.

The same director had his law firm providing legal services to one of the two issuers, which raises questions about his independence. The law firm had been providing general corporate and commercial and other ad hoc legal services since August 2017, including review of commercial arrangements. Since May 2021, it had also provided corporate secretarial services to the company and group. The latter services include the review of the Annual Report, which includes the Corporate Governance Report and the preparation of documents required for the company’s AGM. The fees paid to the law firm each year was said to be below the S$200,000 threshold specified in the Practice Guidance of the 2018 Code. Despite the long relationship and extensive services provided, the director is still considered independent.

What is worrying is that the directors at the centre of contentious corporate governance practices are often highly experienced ones, some of whom are holding or have held senior leadership roles in the Singapore Institute of Directors, a body which purports to raise corporate governance standards.

We see many cases of Singapore companies with highly experienced directors paying little more than lip service to good corporate governance practices. Experience is often confused with knowledge and commitment to good corporate governance.

I have little hope for the future of corporate governance in Singapore, unless regulators and institutional investors step up, and until many of the “highly experienced” directors finally leave the corporate scene, taking their complacency and hubris with them.

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The views in this article are the author’s personal views and do not reflect the views of any organisation or body he is associated with.